The dollar index (DXY00) on Wednesday rose by +0.30% and posted a 2-3/4 month high. Higher T-note yields boosted the dollar’s interest rate differentials and supported the dollar. Also, the weakness in stocks fueled some liquidity demand for the dollar. The dollar was undercut by news that US Sep existing home sales unexpectedly fell to a 14-year low.
US Sep existing home sales unexpectedly fell -1.0% m/m to a 14-year low of 3.84 million, weaker than expectations of an increase to 3.88 million.
The dollar was also undercut by a weak Fed Beige Book report, which indicated a much softer view of the US economy than suggested by the hard data.
The markets are discounting the chances at 92% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 0% for a -50 bp rate cut at that meeting.
EUR/USD (^EURUSD) fell by -0.13% and posted a 3-1/2 month low. The euro was undercut by a Reuters report that some ECB officials are starting to debate whether interest rates will need to move below the neutral level to stimulate economic activity. The euro saw underlying support from news that the Eurozone Oct consumer confidence index rose to a 2-1/2 year high.
Reuters reported that some ECB officials are starting to debate whether interest rates will need to move below the neutral level to stimulate economic activity and that they would like the ECB to drop a reference to "restrictive" rates in its next policy meeting statement to show they are taking downside risks seriously.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the December 12 meeting and a 43% chance of a -50 bp rate cut at the same meeting.
USD/JPY (^USDJPY) rose by +1.02%. The yen tumbled to a new 2-1/2 month low against the dollar. The yen remains under pressure on recent BOJ comments that suggest that BOJ officials see little need to rush into raising interest rates. Also, political uncertainty in Japan is undercutting the yen as polls show that Japanese Prime Minister Ishiba’s ruling coalition may lose its majority in this weekend’s parliamentary election, which could result in an unstable administration. In addition, higher T-note yields today weighed on the yen.
Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 3% for the October 30-31 meeting and at 42% for that +10 bp rate hike at the December 18-19 meeting.
December gold (GCZ24) on Wednesday closed down -30.40 (-1.10%), and December silver (SIZ24) closed down -1.202 (-3.43%). Dec gold fell back from a new contract high after the dollar index climbed to a 2-3/4 month high. Also, higher T-note yields undercut precious metals. Losses in silver prices accelerated after US Sep existing home sales unexpectedly fell to a 14-year low, a negative factor for industrial metals demand.
Precious metals have underlying support from safe-haven demand from Middle East tensions and uncertainty regarding next month's US presidential election. Demand for gold as a store of value is also strong on expectations that regardless of who wins next month’s US presidential election, the US budget deficit will continue to be a major problem. In addition, a dovish report from Reuters was bullish for precious metals when it said some ECB officials are starting to debate whether interest rates will need to move below the neutral level to stimulate economic activity.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
